Better get paid by dividends or salary?
Londina
Registered Posts: 814 Epic contributor 🐘
What's better, get paid by dividends or salary for a director? By salary, no matter if a company is in loss, he can still get paid let's say £500pm...
instead by dividends, all depends by the profit of the year, example if profit 1st year is £280, can the director pay himself £1000?
I don't think so...however there are so many directors that prefer to get paid by dividends and I don't quite see the benefit, if the company is in loss!
Thanks
instead by dividends, all depends by the profit of the year, example if profit 1st year is £280, can the director pay himself £1000?
I don't think so...however there are so many directors that prefer to get paid by dividends and I don't quite see the benefit, if the company is in loss!
Thanks
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Comments
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Directors don't receive dividends.0
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if they are the owner and shareholder, yes they do (very common in small companies)KernowAccountant said:Directors don't receive dividends.
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If the company is making a loss there wouldn't be any dividends to be paid?0
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Unless of course there are enough reserves from previous profitable years.0
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exactly...or enough money from director's loan, so the director can pay himself back?MarieNoelle said:Unless of course there are enough reserves from previous profitable years.
otherwise in this situation, a salary is a better solution0 -
Precisely my point. Shareholders receive dividends; directors do not.Londina said:
if they are the owner and shareholder, yes they do (very common in small companies)KernowAccountant said:Directors don't receive dividends.
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If this is the director's only income a small salary above the LEL is always a good idea for NIC purposes.1
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yeah I know...but in the real world of SME, 90% of the directors are the shareholders (hence the director's loan account?)KernowAccountant said:
Precisely my point. Shareholders receive dividends; directors do not.Londina said:
if they are the owner and shareholder, yes they do (very common in small companies)KernowAccountant said:Directors don't receive dividends.
ExactlyMarieNoelle said:If this is the director's only income a small salary above the LEL is always a good idea for NIC purposes.
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Paying a dividend means a reduction in Employers Nic payable as profits will be charged at corporation tax rate.
However if you used the empoyers allowance provision of £2k then a higher salary could be used as long as the shareholder/director pays the personal tax element.
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Agree but watch out for the withdrawal of the Employer's allowance for sole director's companies from next tax year.0
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Don't be drastic, I haven't accept any appointment, that's why I'm seeking clarification in case I have to deal with a situation like this in future.mrme89 said:
The dividend must be declared from any retained earnings.
Dividends from retained earnings is accountancy 101. If you are struggling with this, I really think you are doing your client a disservice by accepting the appointment.
Of course I know that dividends comes from profit/enough reserves, that's why I'm wondering if a salary would be better0 -
This is not the MIP forum, but members discussion so questions are usually theoretical . Members can be employees in accounts, not all of them are running their own businessmrme89 said:
By the way, it's good etiquette to let people know if the question is theoretical.
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